The Securities and Exchange Commission has prevailed at trial against a Utah man it accused of operating a massive Ponzi scheme that raised $100 million from hundreds of investors. After a trial in which neither defendant appeared or participated, U.S. District Judge Bruce S. Jenkins entered Findings of Fact and Conclusions of Law against Wayne Palmer, of West Jordan, Utah, and his company, National Note of of Utah, LLC ("National Note"), finding that (i) National Note as operated as a Ponzi scheme; (ii) Palmer's violations of federal securities laws were repeated and egregious; and (iii) Palmer acted willfully and has failed to acknowledge his wrongdoing. Palmer and his cousin were indicted earlier this summer for their roles in the scheme, which likely explains Palmer's lack of participation in the Commission's trial.
Palmer operated National Note of Utah ("National Note"), which he formed in 1992, and had worked in the real estate financing business since 1976. Palmer Martin joined National Note in 1993 and served various roles, including "Client Development Manager." National Note purportedly purchased real estate loans and funded new loans, and also dabbled in other unrelated ventures such as flipping rental properties, operating a mint, and extracting precious metals. Palmer traveled across the country teaching real estate investment seminars, in which he offered investors two-to-five year investment opportunities that paid annual returns of 12%. Potential investors were told that their funds would be used to buy and sell mortgage notes, underwrite and make loans, or buy and sell real estate. In a brochure provided to investors, Palmer "guaranteed" "double digit returns" with "no worries about reductions in earnings," touted the reliability of the "monthly payments," and assured investors of the "safety of principle." Between 1995 and 2012, National Note has raised over $140 million from at least 600 investors.
According to authorities, National Note took on the characteristics of a Ponzi scheme as early as 2004 when the majority of funds raised from investors were simply loaned to National Note affiliates. By 2009, over 90% of National Note's outstanding loans were to various affiliates. While Palmer represented that National Note was highly profitable, the indictment alleges that National Note and its affiliates never had net income or positive net equity from 2004 to 2012 sufficient to meet its investor obligations. Scheduled interest payments to National Note investors ceased in October 2011.
The Court's ruling, which came after the Commission presented argument, entered documents into evidence, and called witnesses, concluded that National Note raised more than $140 million from investors. Of that amount, approximately $88.5 million was returned to investors in the form of interest payments or returns of principal, thus resulting in total investor losses of approximately $51.9 million. The Court ordered National Note to disgorge $51.9 million of ill-gotten gains, to pay pre-judgment interest of $13.25 million, and to pay a civil monetary penalty of $900,000. As to Palmer, the Court ordered disgorgement of $1.4 million, pre-judgment interest of $359,264, and a civil monetary penalty of $1.05 million.
The case is one of several high-profile alleged Ponzi schemes uncovered in Utah, which prompted a CNBC segment dubbing Utah as "Ponziland." Authorities point to the large Mormon population as a primary target for fraudsters in what is termed "affinity fraud," and efforts to combat this fraud, including a 2010 public service campaign aimed at educating citizens, have fallen short. Recently, Utah became the first state to pass legislation mandating the creation of a white collar crime registry that will feature a public database of offenders convicted of certain financial/securities crimes.
The Court's Findings of Fact and Conclusions of Law are below: